Russian Retail Sales Slow to 18-Month Low as Inflation Bites

Aug. 20 (Bloomberg) -- Russian retail sales grew in July at
the weakest pace in 18 months after faster inflation curbed
consumer purchasing power, threatening to undercut a mainstay of
the country’s economic growth this year.

Receipts at merchants rose 5.1 percent from a year earlier,
slowing from June’s 6.9 percent to the weakest pace since
January 2011, the Federal Statistics Service in Moscow said in
an e-mailed statement today. That missed all 15 estimates in a
Bloomberg survey, which forecast 6.2 percent growth.

The world’s largest energy exporter has relied on domestic
demand to propel the economy as Europe’s debt crisis and slowing
growth in China curb demand in its two largest trading partners.
Weaker harvests are driving a surge in global food prices,
renewing concern that Russian households will be forced to
retrench as their spending power declines.

“The key driving force behind the slowdown, especially in
consumer demand, is the spike of inflation in June and July,”
Vladimir Osakovskiy, chief economist at Bank of America Merrill
Lynch in Moscow, said by phone after the data release. “We
expect real GDP growth to slow from nearly 5 percent in the
first quarter to just over 3 percent in the second half of this
year.”

The Micex Index of 30 stocks fell 1.1 percent to 1,428.15
as of 12:45 p.m. in Moscow. The ruble strengthened 0.2 percent
to 32.035 per dollar.

Fading Markets

U.S. consumer companies including Kimberly Clark Corp., the
maker of Kleenex tissues and Huggies diapers, are cautioning
investors that major foreign markets including Russia may start
to fade as a source of growth later this year.

Russian real wages grew 10.2 percent in July from a year
earlier, the service said. That matched the downwardly revised
figure for a month earlier and missed economist forecast for
11.2 percent growth. Retail sales from a month earlier advanced
1.6 percent, also missing the median estimate of 2.6 percent.

“The softening in retail sales was to a large extent
concentrated in food sales, likely a consequence of rising food
inflation,” Vladimir Kolychev, head of research at Societe
Generale SA’s OAO Rosbank unit in Moscow, said by e-mail. The
expansion in non-food categories was “still robust” at 8.6
percent, he said.

The central bank has signaled it’s satisfied with the trend
of economic growth and is more likely to focus on imported food
inflation in the coming months, according to Julia Tsepliaeva,
head of research at BNP Paribas in Moscow.

Growth Locomotive

“We forecast private consumption to remain strong through
2012 as a whole and play the role of locomotive of GDP
expansion,” Tsepliaeva said in an e-mailed note to clients.

Fixed-capital investment unexpectedly slowed in July to 3.8
percent, missing the median estimate of 13 economists for a 5.5
percent advance. Spending by companies should have been
supported by calendar factors last month, making the slowdown
more surprising, Osakovskiy said.

The drop challenges President Vladimir Putin’s target to
boost investment to 25 percent of the economy 2015, from about
21 percent last year. Putin, who returned to the Kremlin in May
for a third term as president, says he aims to turn Russia into
one of the world’s five-largest economies by purchasing power.

Unemployment remained at 5.4 percent for a third month, the
lowest level since at least 1999. Economists had forecast an
increase to 5.5 percent, according to the median of 11 estimates
in a Bloomberg survey.

“The steady unemployment rate is the only bright spot in
the data, generally suggesting that domestic demand is clearly
losing steam,” Dmitry Polevoy, chief economist at ING Groep NV
in Moscow, said in a note. “With food inflation clearly
accelerating, real wage growth easing and retail lending also
losing steam, both food and non-food retail sales are set to
weaken further in the second half.”